Farmland price slowdown for next year?

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The 2014 Buyer’s Forecast from Farm Industry News offers insight into the projected prices for seed, crop protection, machinery, fertilizer, land and financing this week. Here we look at farmland prices for 2014.

Changing the demand picture

For Kyle Hansen, Hertz Farm Management, based in Nevada, Iowa, the guide for land values is commodity prices, and he notes that since the beginning of 2013, the market has dropped corn prices $2. Yet one factor may not change immediately. “High-value farmland is very much in demand,” he says.

Realtors like Hansen are still seeing solid sales of top-quality land. However, marginal and lower-value land may see the biggest impact. “We’re seeing timberland and low- to medium-quality land start to slide,” he says.

He adds that when you look at the U.S., USDA reports that 78% of land is paid for, free and clear. “When you start talking about the buying power for individuals and debt paid down in the last few years, and if the land is good quality and fits their operation, they’ll bid for it,” Hansen says.

One factor driving some land purchases is the need to expand for the next generation. For the past 20 years there has been a youth exodus from the farm, but lately farm families are finding sons and daughters who want to return. That pushes farmers to find new income sources, and farming more ground can boost returns.

Interest rates are another hot topic. Low for so long, they started creeping up in 2013. “The Fed continues its chess match to control interest rates,” says Liddell about the Federal Reserve. “As we’ve seen increasing economic activity, we’ve seen an increase in interest rates, which from our perspective is the largest risk to land values.”

Landowners expect a specific return that is directly tied to that interest rate. As rates rise, that can crimp returns, making land less of a bargain, Liddell says.

If you look at historic land values and factor for a corn price of about $4.50, Liddell adds that the average price of farmland is about where it should be. “Our expectation is of a slowing, plateauing effect to land prices,” he adds.